This document proposes a new model of capital partnership as an alternative to traditional equity and debt. The capital partnership model involves productive assets like land or property being held by a custodian, with investors providing financial capital and managers providing human capital. Users pay rent or fees for using the assets. The rents are used to pay returns to investors and managers. This model transforms debt into tradable stock units backed by the productive assets, reducing funding costs. It creates a new secure and liquid asset class for investors while also enabling affordable access to assets for users.

1. Flight to Simplicity
Resolution
Chris Cook
23 July 2012

2. There are conventionally two types of
ownership - Public or Private
03/04/10 2

3. There are two conventional types of
investment: Equity and Debt
03/04/10 3

4. Equity: shares in a Joint Stock Limited Company
03/04/10 4

5. The 19th Century legal dinosaur...
03/04/10 5

6. ...which makes the Private Sector Private
03/04/10 6

7. Debt: typically credit created by banks
secured eg by mortgages
03/04/10 7

8. ...giving two conflicting claims over the
same productive asset
03/04/10 8

9. But there are new creatures out there
03/04/10 9

10. Equity vehicles: Trusts, ETFs, ETCs, ETPs,
REITs, Master Limited Partnerships (MLPs)
03/04/10 10

11. Simple Corporate entities such as the UK
Liability Partnership (LLP)
03/04/10 11

12. UK Company Limited by Guarantee
03/04/10 12

13. These enable Open Corporates
03/04/10 13

14. Over 68,000 UK LLPs are now in pervasive
use for purposes never intended...
03/04/10 14

15. ...even in the Public Sector, where Glasgow
has five municipal LLPs
03/04/10 15

16. Capital Partnership – direct investment in
productive assets
03/04/10 16

17. Embryonic Capital Partnership 2002 (> £1bn)
Gross Revenues
Capital Partnership LLP
10 UK Hotels
% %
Hilton Group Consortium LLP
Capital User Capital Provider
% % %
Property Hotel
Bank
Developer Specialist

18. Generic Capital Partnership
Users
Payment Use
Custodian
Custodian
% %
Investors Managers

19. Productive assets are held by a Custodian
Ownership
Assets
Assets Custodian
Custodian

20. ...who safeguards the asset and accounts
Ownership
Assets
Assets Custodian
Custodian

21. Investors provide Financial Capital in
money, or money’s worth…
Custodian
Custodian
Financial
Capital
Investors

22. Managers provide Human Capital of
time, expertise and experience....
Custodian
Custodian
Financial Human
Capital Capital
Investors Managers

23. Users pay for the use of Capital
Users
Payment Use
Custodian
Custodian
% %
Investors Managers

24. Result: Capital Partnership
Users
Payment Use
Custodian
Custodian
% %
Investors Managers

25. Capital Partnership reinvents Equity

26. Equity Shares - % age shares in flows of
revenue or production
03/04/10 26

27. Stock – units returnable in payment for
use value eg rentals, Kilowatt Hours

28. Albion Trust - a charity providing
affordable office space
31/05/10 28

29. Due to demand for affordable space they
bought the adjacent disused church...
31/05/10 29

30. ...and planned a £4m development
31/05/10 30

31. But if they borrow, rentals will be unaffordable
31/05/10 31

32. Solution? An Albion Partnership
Tenants
Tenants
£
Custodian
Custodian
% %
Investors
Investors Managers
31/05/10 32

33. Unitisation
Users
Users
Rental
Custodian
Custodian
Stock %
Investors
Investors Managers
16/06/10 33

34. Stock - credit instruments returnable in
payment for value received.
16/06/10 34

35. Resolution – stock based upon use value of land
16/06/10 35

36. Stock – undated credits returnable in
payment for occupation
16/06/10 36

37. Custodian is appointed or incorporated
Houses Custodian
Custodian

38. Affordable rental is set
Occupiers
Rental
Custodian

39. Proportional Share allocated to Manager
Occupiers
Rental
Custodian
%
Manager

40. Balance available for unitisation and sale
Occupiers
Rental
Custodian
% %
Investors Managers

41. Units of stock are sold to Investors at a
discount to the rental value
16/06/10 41

42. The discount determines the return
16/06/10 42

43. The rate of return is literally the rate at
which stock may be returned to the issuer
16/06/10 43

44. Debt: £300k pa will fund <£4m debt
over 20 years at 5% compound interest
16/06/10 44

45. Stock - £300k (initially) funds £5m @ 6%
£10m at 3%; £20m @ 1.5% (index-linked)
16/06/10 45

46. Investors lend 'Peer to Asset' to the land –
not to the owner
16/06/10 46

47. Surprise! No compound interest + no principal
repayment = drastic cut in funding costs
16/06/10 47

48. Occupiers - may invest simply by paying
rent in advance
16/06/10 48

49. Receive 'Sweat Equity' Units if they maintain
the property themselves
16/06/10 49

50. Investors – Units of stock are a secure and
liquid new asset class
16/06/10 50

51. Secure – credit default risk in respect of
capital becomes liquidity risk
16/06/10 51

52. Secure - affordability of rental means income
is by definition more certain to be paid
16/06/10 52

53. Liquid – units of stock are not fragmented by
date, rate of return or even issuer
16/06/10 53

54. Liquid – even if Investors do not buy Units,
Occupiers will buy and return to issuer
16/06/10 54

55. Intermediaries (eg Banks) – transform from
a transaction model to service provision
16/06/10 55

56. ...and need Capital only for operating costs
16/06/10 56

57. Back to the Future? Stock pre-dates modern
banking
16/06/10 57

58. Resolution - exchange of dated land-backed
debt for undated land-based stock
16/06/10 58